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Treasurys lost their flight-to-quality bid on Wednesday as airline issues and other "old-line" shares put the major indices on firmer ground. Fed concerns and tech-sector weakness plagued stocks on Tuesday, to the benefit of Treasurys as investors parked money in the relative safety of the bond and note market.

On Wednesday, the benchmark 10-year Treasury note fell 11/32 to yield 6.48 percent, up about 6 basis points from the U.S. settlement Tuesday. The 30-year bond lost 18/32 to yield 6.20 percent, up 4 basis points.

The 5-year was off 6/32 at 6.71 percent and the 2-year shed 3/32 at 6.84 percent. The 2-year yield is off 7 basis points from the five-year-high 6.91 percent revisited last week.

The government's sale of $10 billion in 2-year notes produced a high yield of 6.749 percent, topping the 6.484 percent earned at the last 2-year auction and was the highest since 6.999 percent at an auction held in February of 1995.

Analysts said the smaller $10 billion size would easily be absorbed in the marketplace.

The difference in yield between the bellwether 10-year security and a 2-year note narrowed to 36 basis points from 37 basis points Tuesday.

Buyers emerge

The major stock indices fought off a technology-driven decline on Wednesday, as bargain hunters eventually scooped up even the "new economy" issues that had been shunned for five straight sessions.

When the dust settled, the Dow Industrials
DJIA, +0.11%
tacked on 113 points or 1.1 percent, to 10,535. The Nasdaq Composite
$compq
climbed 106 points or 3.4 percent to 3,270. See Market Snapshot.

In currency markets, the dollar traded mixed against the yen and the euro. Dollar/yen climbed 1.3 percent to 107.83 while euro/dollar rose 0.1 percent to 0.9073.

In the commodity market, July crude rose $1.12 to $29.90 while the Bridge CRB index gained 1.05 to 225.13. View latest commodity prices.

The Treasury market showed minimal reaction to the details of Thursday's debt buyback.

The Treasury announced it would buy back up to $2 billion in par amount of 30-year bonds, with bids due by 11 a.m. Thursday. Coupons on the 13 issues of eligible debt that were sold between February 1989 and August 1993 range from 6.250 percent to 8.875 percent. See further details on the Bureau of Public Debt's Website.

For the first time in 70 years, the federal government is flush with enough cash to buy back some of its costliest outstanding debt. The regularity of such operations has taken away some of the sporadic supply-driven price and yield swings in the long end of the yield curve. Still, the sector generally continues to be uplifted on ideas for fewer bonds in the future. The government plans to reclaim a total of $30 billion in par amount of bonds this year.

A quarter more?

The economic calendar is relatively void of data until the revision to first-quarter gross domestic product hits the tape on Thursday and personal income and spending figures, as well as durable goods orders data, are issued Friday. See and .

"Bonds faded after the Fed announcement [last week] as the statement was interpreted to mean more tightening is in the cards," noted Bill Hornbarger, fixed-income strategist with A.G. Edwards & Sons. "Fed funds futures are now priced for more tightening, starting with a 25-basis-point move at the June 28 meeting.

But Hornbarger wants more proof the Fed isn't willing to let some of its six rate hikes since last summer take hold before it pulls the trigger on rates again so soon.

"We would point out that in the 1994-95 tightening cycle, after the Fed moved more than 25 basis points, they did nothing the next month. We think it is still too early to make a call on the June meeting," he said.

Federal Reserve Vice Chair Roger Ferguson told the Financial Times in London that "inflation risks are real," but he saw no change in the inflation threat now compared to three months ago. Ferguson said the Fed continues to be concerned with the tightness of the labor market and its potential to spawn wage-push inflation.

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